Having worked with virtualization, I can say that performance should be "almost" a non-issue with virtualization nowadays - as long as you remember to use products like ESX/Hyper-V/Xen, not host-OS-based virtualization products like VMware server, VMware workstation, or MS Virtual Server. I say "almost" because there are a few applications that is not suitable for virtualization, and even if it is, most likely you will see "near native" performance due to overhead - even if the overhead is supposedly very small. Security and high availability can be set up to be just as secure and highly available as if you were running all physicals - any virtualization vendor or experts will be willing to help you with that.

The real problem is poor planning. Looking at just one side of things is what breaks virtualization project. You are essentially rebuilding your whole infrastructure, so you need to look at the whole picture - network, storage, security, servers, facility, power, and more.

Also, be warned that newer CPUs are much better for virtualization than the older CPUs. You can search for "hardware virtualization nuts and bolts" article and many more articles about virtualization in anandtech, but bottom line is, if you're going for virtualization, you may need to buy new servers. Make sure you do your homework to see if the initial investment will pay off in the long run. Then again, your servers may be due for a hardware refresh anyways.